$38/cwt Dairy Support Price?

Could $38 milk be in the offing in 2013? There is a default provision within permanent Farm Law that requires the Secretary of Agriculture to set the dairy price support between 75 and 90% of parity if the current Farm Bill expires.

Taking the August 2012 parity price of $51.70 as a guide, that suggests the Secretary would have to set the dairy support price at a minimum of $38 on January 1, 2013 if no new farm legislation is passed. That’s about twice the Class III and IV prices expected this fall, and almost four times the current support price.

Even so, there’s enough flexibility given to the Secretary of Agriculture that such a huge price increase is unlikely to occur. “USDA could take a while to get all the machinery in motion, while Congress presumably came to its senses and retroactively stopped it all,” says Andy Novakovic, a dairy economist with Cornell University.

USDA also could set product and packaging specifications so tightly that no processor would sell product to the government. “This actually happened in the 1980s and at times in the 1990s,” says Novakovic. “…even a cooperative would likely think twice before shorting existing customers for the short-term high of selling to USDA in a program that no sane person could expect to continue for long.”